GALA’s founder became interested in this topic while working at the International Development Law Organization on legal issues related to the microcredit industry (renamed microfinance; renamed financial inclusion) which offered affordable services to the poor.
Many developing countries’ financial sector regulators do not adequately monitor and supervise financial services providers that target the poor consumer. It is simply not a priority and capacity is low. Further, donors and international investors advocate a ‘test and learn’ policy with regard to digital financial services, which has unfortunately has also opened the door to every financial predator and fraudster who wanted to open a micro credit institution.
Because people are poor, they will accept the terms of any lender; be it from a mafia loan shark in Italy, or a pro poor bank in Mexico offering loans at over 100% APR to the poor, or even a Nigerian micro finance bank offering 3 week loans at an 800% interest rate. Often the terms and conditions of a loan allow the creditor to seize and sell debtor property, including the debtors’ home in the event of a default.
In quite a few countries (per GALA’s research in Egypt, UAE, Uganda, Tanzania, Sierra Leone and more), a debtor can be jailed for an unpaid civil debt. In Egypt, and estimated 20% of the prison population is there due to unpaid debts and the majority of that 20% are females. (See publications page).
In many countries, debt collectors are also not regulated, therefore they menace, physically abuse and often violate human rights of debtors.
GALA is one of very few organizations that work on this issue globally; proposing law reform and the establishment of debtor counseling and mediation services.
Imprisoning someone who is over indebted is an abomination which further obstacles financial inclusion.